Transcript of Chairman Powell's Press Conference, June 13 ...

June 13, 2018

Chairman Powell's Press Conference

FINAL

Transcript of Chairman Powell's Press Conference June 13, 2018

CHAIRMAN POWELL. Good afternoon. Thanks very much for being here. I know that a number of you will want to talk about the details of our announcement today, and I am happy to do that in a few minutes. But because monetary policy affects everyone, I want to start with a plain-English summary of how the economy is doing, what my colleagues and I at the Federal Reserve are trying to do, and why.

The main takeaway is that the economy is doing very well. Most people who want to find jobs are finding them, and unemployment and inflation are low. Interest rates have been low for some years while the economy has been recovering from the financial crisis. For the past few years, we have been gradually raising interest rates, and along the way we've tried to explain the reasoning behind our decisions. In particular, we think that gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive. Today, we've taken another step in that process by raising our target range for the federal funds rate by ? of a percentage point.

My colleagues and I meet eight times a year and take a fresh look each time at what is happening in the economy and consider whether our policy needs adjusting. We don't put our interest rate decisions on hold or on autopilot, because the economy can always evolve in unexpected ways. History has shown that moving interest rates either too quickly or too slowly can lead to bad economic outcomes. We think the outcomes are likely to be better overall if we are as clear as possible about what we are likely to do and why. To that end, we try to give a sense of our expectations for how the economy will evolve and how our policy stance may change.

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June 13, 2018

Chairman Powell's Press Conference

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As Chairman, I hope to foster a public conversation about what the Fed is doing to support a strong and resilient economy. And one practical step in doing so is to have a press conference like this after every one of our scheduled FOMC meetings. And we're going to do that beginning in January. That will give us more opportunities to explain our actions and to answer your questions. I want to point out that having twice as many press conferences does not signal anything about the timing or pace of future interest rate changes. This change is only about improving communications. My FOMC colleagues and I will also continue to issue our economic projections on the existing quarterly schedule.

Now, let me go into more detail over developments in the economy, our economic projections, and our policy decision. Economic growth appears to have picked up in the current quarter, largely reflecting a bounceback in household spending. Business investment continues to grow strongly, and the overall outlook for growth remains favorable. Several factors support this assessment: Fiscal policy is boosting the economy, ongoing job gains are raising incomes and confidence, foreign economies continue to expand, and overall financial conditions remain accommodative. These observations are consistent with the projections that Committee participants submitted for this meeting. The median projection for the growth of real GDP is 2.8 percent this year, 2.4 percent next year, and 2 percent in 2020. Compared with the projections made in March, this median growth path is little changed.

In the labor market, job gains averaged 180,000 per month over the past three months, well above the pace needed in the longer run to provide jobs for new entrants into the workforce. The unemployment rate declined over the past two months and stood at 3.8 percent in May, its lowest level in nearly two decades. Meanwhile, the labor force participation rate has been roughly unchanged since late 2013. That is a positive sign, given that the aging of our

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June 13, 2018

Chairman Powell's Press Conference

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population is putting downward pressure on the participation rate. And we expect the job market to remain strong. As you can see in our Summary of Economic Projections, the median of Committee participants' projections for the unemployment rate stands at 3.6 percent in the fourth quarter of this year and runs at 3.5 percent over the next two years, a percentage point below the median estimate of its longer-run normal rate. This median path is just a bit lower than that from March.

After many years of running below our 2 percent longer-run objective, inflation has recently moved close to that level. Indeed, overall consumer prices, as measured by the price index for personal consumption expenditures, increased 2 percent over the 12 months ending in April. The core PCE index, which excludes prices of energy and food and tends to be a better indicator of future inflation, rose 1.8 percent over the same period. As we had expected, inflation moved up as the unusually low readings from last March dropped out of the calculation. The recent inflation data have been encouraging, but after many years of inflation below our objective, we do not want to declare victory. We want to ensure that inflation remains near our symmetric 2 percent longer-run goal on a sustained basis. As we note in our Statement of Longer-Run Goals and Monetary Policy Strategy, the Committee would be concerned if inflation were running persistently above or below our 2 percent objective. Of course, many factors affect inflation--some temporary and others more lasting--and at any given time inflation may be above or below 2 percent. For example, the recent rise in oil prices will likely push inflation somewhat above 2 percent in coming months. But that transitory development should have little, if any, consequence for inflation over the next few years. The median of participants' projections for inflation runs at 2.1 percent through 2020. Relative to the March projections, the median inflation projection is a little higher this year and next.

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June 13, 2018

Chairman Powell's Press Conference

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As I mentioned, today we took another step in gradually scaling back monetary policy accommodation by raising the target range for the federal funds rate by ? percentage point, bringing it to 1? to 2 percent. We also made some changes to our policy statement, reflecting that policy normalization is proceeding broadly as we have expected. None of these changes signals a change in our policy views. For example, we removed the language stating that "the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run." Since we introduced that language a few years ago, the economy has strengthened, and the Committee has raised the federal funds rate from near 0 to 1? to 2 percent. As we continue to note in our statement, we expect to make further gradual increases in that rate. As a result, if the economy evolves broadly as we anticipate, the federal funds rate will, over the next year or so, move well within the range of estimates of the normal long-run level. Therefore, we thought that now is an appropriate time to remove this forward guidance from our policy statement.

We continue to believe that a gradual approach for increasing the federal funds rate will best promote a sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2 percent goal. We are aware that raising rates too slowly might raise the risk that monetary policy would need to tighten abruptly down the road in response to an unexpectedly sharp increase in inflation or financial excesses, jeopardizing the economic expansion. Conversely, if we raise interest rates too rapidly, the economy could weaken, and inflation could continue to run persistently below our objective.

The Committee's gradual approach is reflected in participants' projections for the appropriate path for the federal funds rate. The median projection for the federal funds rate is 2.4 percent at the end of this year, 3.1 percent at the end of 2019, and 3.4 percent at the end of

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Chairman Powell's Press Conference

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2020. By 2020, the median federal funds rate is modestly above its estimated longer-run level. These projections are very similar to those made in March. Although the median federal funds rate edged up this year and next, most participants did not revise their projections.

I'll conclude by mentioning two additional matters. First, our program for reducing our balance sheet, which began in October, is proceeding smoothly. Barring a material and unexpected weakening in the outlook, this program will proceed on schedule, and our balance sheet will continue to shrink. As we have said, changing the target range for the federal funds rate is our primary means of adjusting the stance of monetary policy.

And, finally, as discussed in the minutes of our May meeting, we're making a small technical adjustment in one of our tools for implementing monetary policy. To keep the federal funds rate in the target range, we rely on the rate of interest on excess reserves, or the IOER rate. Up until now, we have set the IOER rate at the top of the target range for the federal funds rate. In recent months, the federal funds rate has moved up toward the IOER rate as short-term interest rates have risen more generally. So to move the federal funds rate closer to the middle of the target range, we are now setting the IOER rate 5 basis points below the upper end of the target range. This minor technical adjustment has no bearing on the appropriate path for the federal funds rate or financial conditions more generally. Thanks for listening, and I'll be happy to take your questions.

JIM TANKERSLEY. Hi, Mr. Chairman. Jim Tankersley, New York Times. I have a question about inflation and a question about growth. On inflation, I'm curious if there's anything that's happened since March that has changed your assessment of the risk of inflation increases beyond what you forecast in the year to come. And, on growth, you mentioned fiscal

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